St. Joseph businessman who stole from investors to fund 'extravagant lifestyle' sentenced to 7 years

A St. Joseph businessman who bilked investors out of more than $1 million was sentenced Wednesday, Aug. 13, 2014, to 87 months in federal prison for wire fraud.File photo

ST. JOSEPH, MI – He was a self-proclaimed millionaire who lived "a lifestyle he could not afford," according to federal prosecutors.

And in the end, Freeman "Buck" Carl Reed funded his extravagance by convincing more than a dozen people to invest more than $1.3 million in a bogus Filipino gold mine and gold certificates they were told belonged to the country's former dictator, Ferdinand Marcos, according to documents filed in U.S. District Court in Grand Rapids.

On Wednesday, U.S. District Judge Janet T. Neff sentenced Reed to 87 months in a federal penitentiary for one count of wire fraud. He also was sentenced to concurrent terms of one year each for three counts of failing to file a tax return.

Reed, who was indicted along with Gary Edward Degler in July 2013 on numerous felony charges, was convicted in January of three counts of failing to file a tax return in 2007, 2008 and 2009. In March, he pleaded guilty to wire fraud.

The wire fraud charge, stemmed from $250,000 Reed obtained from an investor for the Filipino gold mine.

In exchange for his plea, four counts of wire fraud and two counts of money laundering were dismissed at Wednesday's sentencing,

In a sentencing memorandum filed last week, Assistant U.S. Attorney Clay Stiffler described Reed as a "Multi-Level Marketing Guru" who lived in St. Joseph, ran a successful business selling "various fruit juices and other elixirs" and received compensation from a number of different companies.

Despite his success, Reed stopped filing tax returns in 2002 and currently owes the Internal Revenue Service more than $565,000, plus $568,000 in interest and penalties.

"Reed lived an extravagant lifestyle and advertised himself as a millionaire as a way of inducing people to engage in business with him and purchase his training sessions," Stiffler wrote in the sentencing memorandum. "Reed's self-professed wealth figured prominently in his sales presentations and website, which featured numerous photos of his large house, five luxury cars, boats, and ... luxury vacations and extended trips to Colorado."

However, Stiffler said Reed's lifestyle was a façade and, in fact, "his expenses far exceeded his income." According to the sentencing memorandum, Reed had two mortgages on his home, all of his luxury cars were financed, he owed large credit card bills and he also owed taxes not only to the IRS, but to the state and local governments as well.

By 2007, according to court documents, Reed's financial situation became dire as his income from his multi-level marketing products fell and he was terminated from ViaViente, whole-food producing company that he had received compensation from.

That year, he reconnected with Degler, a former marketing associate, and the two set in place the gold mine and gold certificate schemes.

The duo told investors they had access to, and control of, a secret dig site in a mountain in the Philippines that contained gold bars left behind by the Japanese military during World War II. Reed showed pictures of the gold bars and the dig site and told them he and Degler needed money to pay for equipment, vehicles and workers to recover the gold.

They also promised investors returns of three to 10 times that of their investment, according to court documents.

Prosecutors said that as no gold was ever recovered from the bogus venture, Reed and Degler began pitching the opportunity to invest in gold certificates that once belonged to Marcos and were "worth billions of dollars" and could only be redeemed in Switzerland.

By 2009, Reed and Degler had raised more than $1 million through the bogus ventures, according to court documents. But instead of spending the money as they said they would, Reed's bank records show he only spent a total of $39,000 on the gold scheme.

He sent half of the ill-gotten money to Degler and spent the remainder – approximately $600,000 – on personal expenses that included his $6,000-a-month mortgage, $7,000 in monthly car payments, $14,000 for new tires for his Corvette, and $94,000 on a deck at his house.

He also paid for vacations, trips to Nordstrom and Louis Vuitton, cosmetic surgery for his wife, private school for his children and credit card payments.

Prosecutors said that as time passed and investors began questioning the legitimacy of the Filipino gold mine and gold certificates, Reed would "attempt to pacify them" with false statements "about having received funds and continue to promise returns on their investment that he knew were not forthcoming."

In addition to his prison sentence, Neff ordered Reed to pay restitution of $565.509 to the IRS, and $1.32 million in restitution to the investors he bilked. The court also recommended that Reed serve out his sentence at the Federal Medical Center in Devens, Mass., or at a facility near Boston.

Rex Hall Jr. is a public safety reporter for the Kalamazoo Gazette. You can reach him at rhall2@mlive.com. Follow him on Twitter.